Which of the following is not one of the appeals of an unrelated diversification strategy?

are cost-saving efficiencies that stem directly from strategic fits along the value chains of related businesses.

2

Checking a diversified company's business portfolio for the competitive advantage potential of cross-business strategic fits does not involve determining whether sister business units have value chain match-ups that offer opportunities to

Employ the same basic competitive approach and pursue the same type of competitive advantage.

3

The top-level executive task of crafting a diversified company's overall or corporate strategy does not include which one of the following?

Choosing the appropriate value chain for each business the company has entered

4

The three tests for judging whether a particular diversification move can create added long-term value for shareholders are

The industry attractiveness test, the cost-of-entry test, and the better-off test.

5

Retrenching to a narrower diversification base

has the advantage of enabling a company to strive for better long-term performance by concentrating on building strong positions in a small number of core businesses and industries and avoiding the mistake of diversifying so broadly that resources and management attention are stretched thinly across many businesses.

6

The difference between a "cash-cow" business and a "cash hog" business is that

A cash cow business produces large internal cash flows over and above what is needed to build and maintain the business whereas the internal cash flows of a cash hog business are too small to fully fund its operating needs and capital requirements.

7

Diversifying into related businesses where competitively valuable strategic fit benefits can be captured and turned into a competitive advantage over business rivals whose operations do not offer comparable strategic-fit benefits

is what fuels 1+1=3 gains in shareholder value--the necessary outcome for satisfying the better-off test and proving the business merit of a company's diversification effort.

8

Using relative market share to assess a business's competitive strength is analytically superior to straight percentage measures of market share because relative market share

is a better indicator of competitive strength than is a simple percentage measure of market share--for instance, a company with a 20% market share is in a much stronger competitive position if its largest rival has a market share of 10% (which means its relative market share is 2.0) that it is if its largest rival has a 30% market share (in which case the company's relative market share is only 0.67).

9

Which of the following is not part of the procedure for evaluating the pluses and minuses of a diversified company's strategy and deciding what actions to take to improve the company's performance?

Conducting a SWOT analysis of each business the company has diversified into.

10

Which of the following are negatives or disadvantages of pursuing unrelated diversification strategies?

No potential for competitive advantage beyond any benefits of corporate parenting and what each individual business can generate on its own.

11

Which one of the following is not one of the appeals of unrelated diversification?

it is quicker and easier to build a competitive advantage over undiversified or less-diversified companies.

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• MGT603 Strategic Management Solved MCQs Set 4

MGT603 Strategic Management Solved MCQs Set 4

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Which of the following is not one of the appeals of an unrelated diversification strategy?
A. The ability to spread business risk over truly diverse businesses (as compared to related diversification which is limited to spreading risk only among businesses with strategic fit)
B. An ability to employ the company's financial resources to maximum advantage by investing in whatever industries/businesses offer the best profit prospects
C. Superior top management ability to cope with the wide variety of problems encountered in managing a broadly diversified group of businesses
Answer:c

Which of the following is not among the disadvantages and managerial problems encountered by companies pursuing unrelated diversification strategies?
A. Being without the added source of competitive advantage that cross-business strategic fit provides
B. Spreading corporate resources too thinly over too many different lines of business
C. The strain it places on corporate-level management in trying to stay on top of fresh industry developments and the strategic progress and plans of each business subsidiary
D. Ending up with too many cash hog businesses (as compared to related diversification strategies where cash hog businesses are rare)
Answer:d

The two biggest drawbacks or disadvantages of unrelated diversification are
A. The difficulties of passing the cost-of-entry test and the ease with which top managers can make the mistake of diversifying into businesses where competition is too intense
B. The difficulties of capturing financial fit and having insufficient financial resources to spread business risk across many different lines of business
C. Demanding managerial requirements and being without the added source of competitive advantage that cross-business strategic fit provides
Answer:c

The two biggest drawbacks or disadvantages of unrelated diversification are
A. Underemphasizing the importance of resource fit and the strong likelihood of diversifying into businesses that top management does not know all that much about
B. Insufficient cash flows to finance so many different lines of business and a lack of uniformity among the strategies of the businesses it has diversified into
C. Volatile sales and profits and making the mistake of diversifying into too many cash cow businesses
D. The difficulties of competently managing many different businesses and being without the added source of competitive advantage that cross-business strategic fit provides
Answer:d

A fundamental weakness of unrelated diversification is
A. The tendency of corporate managers to place too much emphasis on investing in cash cows rather than promising cash hogs
B. Reducing a company's access to economies of scope
C. Greater potential for there to be too much diversity among the competitive strategies of the various business subsidiaries
D. The greater risk of getting trapped in tough struggles with strong competitors
E. That the greater the number of businesses a company is in and the more diverse they are, the harder it is for corporate managers to stay abreast of what's happening in each industry and each subsidiary, know much about the problems and issues each business
Answer:d

A fundamental weakness of unrelated diversification is
A. The tendency of corporate managers to place too much emphasis on investing in cash cows rather than promising cash hogs
B. Reducing a company's access to economies of scope
C. Greater potential for there to be too much diversity among the competitive strategies of the various business subsidiaries
D. The greater risk of getting trapped in tough struggles with strong competitors
E. That the greater the number of businesses a company is in and the more diverse they are, the harder it is for corporate managers to stay abreast of what's happening in each industry and each subsidiary, know much about the problems and issues each business confronts and know what to do if a business unit stumbles and its results suddenly head downhill
Answer:e

To identify a diversified company's strategy, one should consider such factors as
A. The extent to which the firm is broadly or narrowly diversified, whether it is pursuing related or unrelated diversification (or a mixture of both) and the recent moves it has made to divest businesses, acquire new businesses and strengthen the positions of existing businesses
B. Whether the company is focusing on "milking its cash cows" or "feeding its cash hogs."
C. The technological proficiencies, labor skill requirements and functional area strategies characterizing each of the firm's businesses
Answer:a

When identifying a diversified company's present corporate strategy, which of the following would not be something to look for?
A. Recent moves to build positions in new industries
B. The company's approach to allocating investment capital and resources across its present businesses
C. Recent management actions to strengthen the company's positions in existing businesses
D. Recent moves to divest weak or unattractive business units
E. Actions over the past few years to substitute global strategies for multi-country strategies in one or more business units
Answer:e

Which of the following is not a major consideration in evaluating the pluses and minuses of a diversified company's strategy?
A. Checking whether the company's resources fit the requirements of its present business lineup
B. Scrutinizing each industry/business to determine where driving forces are strongest/weakest and how many profitable strategic groups the company has diversified into
C. Ranking the performance prospects of the various businesses from best to worst and determining what the corporate parent's priorities should be in allocating resources to its different businesses
Answer:b

Evaluating a diversified company's corporate strategy and critiquing the pluses and minuses of its business lineup involves
A. A SWOT analysis of each industry in which the firm has a business interest
B. Applying the cost-of-entry test, the better-off test, the profitability test and the shareholder value test to each business and industry represented in the company's business portfolio
C. Evaluating the strategic fits and resource fits among the various sister businesses and deciding what priority to give each of the company's business units in allocating resources
Answer:c

Which one of the following is not an important aspect of evaluating the merits of a diversified company's strategy?
A. Assessing the competitive strength of each business the company has diversified into
B. Determining which business units are cash cows and which ones are cash hogs and then evaluating how soon the company's cash hogs can be transformed into cash cows
C. Evaluating the strategic fits and resource fits among the various sister businesses
Answer:b

Which of the following is not generally something that ought to be considered in evaluating the attractiveness of a diversified company's business makeup?
A. Market size and projected growth rate, industry profitability and the intensity of competition
B. Industry uncertainty and business risk
C. The frequency with which strategic alliances and collaborative partnerships are used in each industry, the extent to which firms in the industry utilize outsourcing and whether the industries a company has diversified into have common key success factors
Answer:c

Assessments of the long-term attractiveness of each industry represented in a diversified company's lineup of businesses should be based on
A. A complete value-chain analysis of each industry
B. Whether the industries have the same kinds of driving forces
C. How many companies in each industry are making money and how many are losing money
D. Quantitative industry attractiveness scores derived from rating each industry on several relevant attractiveness measures (weighted according to their relative importance in determining overall attractiveness)
Answer:d

The chief purpose of calculating quantitative industry attractiveness scores for each industry a company has diversified into is to
A. Determine which industry is the biggest and fastest growing
B. Get in position to rank the industries from most competitive to least competitive
C. Provide a basis for drawing analysis-based conclusions about the attractiveness of the industries a company has diversified into, both individually and as a group and further to provide an indication of which industries offer the best and worst long-term prospects
Answer:c

A weighted industry attractiveness assessment is generally analytically superior to an unweighted assessment because
A. A weighted ranking identifies which industries offer the best/worst long-term profit prospects
B. An unweighted ranking doesn't discriminate between strong and weak industry driving forces and industry competitive forces
C. It does a more accurate job of singling out which industry key success factors are the most important
D. An unweighted ranking doesn't help identify which industries have the easiest and hardest value chains to execute
E. The various measures of attractiveness are not likely to be equally important in determining overall attractiveness
Answer:e

When industry attractiveness ratings are calculated for each of the industries a multi-business company has diversified into, the results help indicate
A. Which industries appear to be the best and worst ones to be in and the attractiveness of all the industries as a group from the standpoint of the company's long-term performance
B. Which industries have attractive key success factors and which industries have unattractive key success factors
C. Which industries have the biggest economies of scale and which industries have the greatest economies of scope and the overall potential for cost reduction in the industries as a group
Answer:a

Calculating quantitative attractiveness ratings for the industries a diversified company has invested in
A. Allows a company to rank the competitive advantage opportunities in each industry from best to worst
B. Helps identify which industries have the best/worst prospects for revenue growth
C. Identifies which industry has the best/worst value chain from the standpoint of cost reduction potential
D. Provides a basis for deciding whether a diversified company has good prospects for growth and profitability, given the attractiveness ratings of the industries in which it has business interests
Answer:d

Assessments of how a diversified company's subsidiaries compare in competitive strength should be based on such factors as
A. Vulnerability to seasonal and cyclical downturns, vulnerability to driving forces and vulnerability to fluctuating interest rates and exchange rates
B. Relative market share, ability to match or beat rivals on key product attributes, brand image and reputation, costs relative to competitors and ability to benefit from strategic fits with sister businesses
C. The appeal of its strategy, relative number of competitive capabilities, the number of products in each businesses product line, which businesses have the highest/lowest market shares and which businesses earn the highest/lowest profits before taxes
Answer:b

The basic purpose of calculating competitive strength scores for each of a diversified company's business units is to
A. Rank the business unit from best to worst in terms of potential for cost reduction and profit margin improvement
B. Determine how strongly positioned each business unit is in its industry and the extent to which it already is or can become a strong market contender
C. Determine which business unit has the greatest number of resource strengths, competencies and competitive capabilities and which one has the least
Answer:b

Using relative market share to assess a business's competitive strength is analytically superior to straight percentage measures of market share because relative market share
A. Is a better measure of a business's potential for increased sales and profitability
B. Is a better indicator of competitive strength than is a simple percentage measure of market share—for instance, a company with a 20% share is in a much stronger competitive position if its largest rival has a share of 10% (which means its relative market share is 2.0) than it is if its largest rival has a 30% market share (in which case the company's relative market share is only 0.67)
Answer:b

A weighted competitive strength analysis of a diversified company's business units is conceptually stronger than an unweighted analysis because
A. It provides a more accurate assessment of the strength of cross-business strategic fits
B. It provides better indication of which business units have the best strategy (vis-à-vis the rival in their respective industry)
C. The different measures of competitive strength are unlikely to be equally important
Answer:c

The value of determining the relative competitive strength of each business a company has diversified into is
A. To have a quantitative basis for identifying which businesses have large/small competitive advantages or competitive disadvantages vis-à-vis the rivals in their respective industries
B. To have a quantitative basis for rating them from strongest to weakest in terms of contributing to the corporate parent's revenue growth
C. To compare resource strengths and weaknesses, business by business
D. To have a quantitative basis for rating them from strongest to weakest in contending for market leadership in their respective industries
Answer:d

The nine-cell industry attractiveness-competitive strength matrix
A. Is useful for helping decide which businesses should have high, average and low priorities in allocating corporate resources
B. Indicates which businesses are cash hogs and which are cash cows
C. Pinpoints what strategies are most appropriate for businesses positioned in the three top cells of the matrix but is less clear about the best strategies for businesses positioned in the bottom six cells
Answer:a

The most important strategy-making guidance that comes from drawing a 9-cell industry attractiveness-competitive strength matrix is
A. Which businesses in the portfolio have the most potential for strategic fit and resource fit
B. Why cash cow businesses are more valuable than cash hog businesses
C. That corporate resources should be concentrated on those businesses enjoying both a higher degree of industry attractiveness and competitive strength and that businesses having low competitive strength in relatively unattractive industries should be looked at for possible divestiture
Answer:c

One of the most significant contributions to strategy-making in diversified companies that the 9-cell industry attractiveness/competitive strength matrix provides is
A. Identifying which businesses have strategies that should be continued, which business have strategies that need fine-tuning and which businesses have strategies that need major overhaul
B. That businesses having the greatest competitive strength and positioned in the most attractive industries should have the highest priority for corporate resource allocation and that competitively weak businesses in relatively unattractive industries should have the lowest priority and perhaps even be considered for divestiture
C. Pinpointing what strategies are most appropriate for businesses positioned in the four corners of the matrix (although the matrix reveals little about the best strategies for businesses positioned in the remainder of the matrix)
Answer:b

In a diversified company, a business subsidiary has more competitive advantage potential when
A. It is a cash cow
B. It has value chain relationships with other business subsidiaries that present competitively valuable opportunities to transfer skills or technology or intellectual capital from one business to another, combine the performance of related activities and reduce costs, share use of a well-respected brand name or collaborate to create new competitive capabilities
C. It is the company's biggest profit producer or is capable of becoming the biggest
Answer:b

Checking a diversified company's business portfolio for the competitive advantage potential of cross-business strategic fits does not involve ascertaining
A. The extent to which sister business units have value chain match-ups that offer opportunities to combine the performance of related value chain activities and reduce costs
B. The extent to which sister business units have value chain match-ups that offer opportunities to transfer skills or technology or intellectual capital from one business to another
C. The extent to which sister business units have opportunities to share use of a well-respected brand name
D. The extent to which sister business units have value chain match-ups that offer opportunities to create new competitive capabilities or to leverage existing resources
E. Which business units are cash cows and which ones are cash hogs
Answer:e

Checking a diversified firm's business portfolio for the competitive advantage potential of cross-business strategic fits entails consideration of
A. Whether the parent's company's competitive advantages are being deployed to maximum advantage in each of its business units
B. Whether the competitive strategies employed in each business act to reinforce the competitive power of the strategies employed in the company's other businesses
C. Whether the competitive strategies in each business possess good strategic fit with the parent company's corporate strategy
D. The extent to which there are competitively valuable relationships between the value chains of sister business units and what opportunities they present to reduce costs, share use of a potent brand name, create competitively valuable new capabilities via cross-business collaboration or transfer skills or technology or intellectual capital from one business to another
Answer:d

Which of the following is not a part of checking a diversified company's business units for cross-business competitive advantage potential?
A. Ascertaining the extent to which sister business units have value chain match-ups that offer opportunities to combine the performance of related value chain activities and reduce costs
B. Ascertaining the extent to which sister business units have value chain match-ups that offer opportunities to transfer skills or technology or intellectual capital from one business to another
C. Ascertaining the extent to which sister business units are making maximum use of the parent company's competitive advantages
Answer:c

A diversified company's business units exhibit good resource fit when
A. Each business is a cash cow
B. A company has the resources to adequately support the requirements of its businesses as a group without spreading itself too thin and when individual businesses add to a company's overall strengths
C. Each business is sufficiently profitable to generate an attractive return on invested capital
Answer:b

The businesses in a diversified company's lineup exhibit good resource fit when
A. The resource requirements of each business exactly match the resources the company has available
B. Individual businesses add to a company's resource strengths and when a company has the resources to adequately support the requirements of its businesses as a group without spreading itself too thin
C. Each business is generates just enough cash flow annually to fund its own capital requirements and thus does not require cash infusions from the corporate parent
Answer:b

A "cash cow" type of business
A. Generates unusually high profits and returns on equity investment
B. Is so profitable that it has no long-term debt
C. Generates positive cash flows over and above its internal requirements, thus providing a corporate parent with cash flows that can be used for financing new acquisitions, investing in cash hog businesses and/or paying dividends
Answer:c

A "cash hog" type of business
A. Is one that is losing money and requires cash infusions from its corporate parent to continue operations
B. Is one that generates cash flows that are too small to fully fund its operations and growth
C. Generates negative cash flows from internal operations and thus requires cash infusions from its corporate parent to report a profit
Answer:b

The difference between a "cash-cow" business and a "cash hog" business is that
A. A cash cow business is making money whereas a cash hog business is losing money
B. A cash cow business generates enough profits to pay off long-term debt whereas a cash hog business does not
C. A cash cow business generates positive retained earnings whereas a cash hog business produces negative retained earnings
D. A cash cow business produces large internal cash flows over and above what is needed to build and maintain the business whereas the internal cash flows of a cash hog business are too small to fully fund its operating needs and capital requirements
Answer:d

The tests of whether a diversified company's businesses exhibit resource fit do not include
A. Whether the excess cash flows generated by cash cow businesses are sufficient to cover the negative cash flows of its cash hog businesses
B. Whether a business adequately contributes to achieving the corporate parent's performance targets
C. Whether the company has adequate financial strength to fund its different businesses and maintain a healthy credit rating
D. Whether the corporate parent has sufficient cash to fund the needs of its individual businesses and pay dividends to shareholders without having to borrow money
Answer:d

Which one of the following is not part of the task of checking a diversified company's business line-up for adequate resource fit?
A. Determining whether the excess cash flows generated by cash cow businesses are sufficient to cover the negative cash flows of its cash hog businesses
B. Determining whether recently acquired businesses are acting to strengthen a company's resource base and competitive capabilities or whether they are causing its competitive and managerial resources to be stretched too thinly across its businesses (sometimes newly-acquired businesses soak up a disproportionate share of management's time and put a strain on other company resources)
C. Determining whether some business units have value chain match-ups that offer opportunities to transfer skills or technology or intellectual capital from one business to another
Answer:c

Which one of the following is not a particularly relevant consideration in deciding what the priorities should be for allocating resources to the various businesses of a diversified company?
A. Whether and how corporate resources and capabilities can be used to enhance the competitiveness of particular business units
B. What competitive strategy the business is presently using
C. Whether a business exhibits good strategic fit and resource fit with sister businesses
Answer:b

Which one of the following is the best guideline for deciding what the priorities should be for allocating resources to the various businesses of a diversified company?
A. Businesses with high industry attractiveness ratings should be given top priority and those with low industry attractiveness ratings should be given low priority
B. Business subsidiaries with the brightest profit and growth prospects and solid strategic and resource fits generally should head the list for corporate resource support
C. The positions of each business in the nine-cell attractiveness-strength matrix should govern resource allocation
Answer:b

Which one of the following is not a reasonable option for deploying a diversified company's financial resources?
A. Making acquisitions to establish positions in new businesses or to complement existing businesses
B. Concentrating most of a company's financial resources in cash cow businesses and allocating little or no additional resources to cash hog businesses until they show enough strength to generate positive cash flows
C. Funding long-range R&D ventures aimed at opening market opportunities in new or existing businesses
Answer:b

The strategic options to improve a diversified company's overall performance do not include which of the following categories of actions?
A. Broadening the company's business scope by making new acquisitions in new industries
B. Increasing dividend payments to shareholders and/or repurchasing shares of the company's stock
C. Restructuring the company's business lineup and putting a whole new face on the company's business makeup
Answer:b

Once a company has diversified into a collection of related or unrelated businesses and concludes that some strategy adjustments are needed, which one of the following is not one of the main strategy options that a company can pursue?
A. Pursue multinational diversification
B. Restructure the company's business lineup
C. Craft new initiatives to build/enhance the reputation of the company's brand name
Answer:c

Retrenching to a narrower diversification base
A. Is usually the most attractive long-run strategy for a broadly diversified company confronted with recession, high interest rates, mounting competitive pressures in several of its businesses and sluggish growth
B. Has the advantage of focusing a diversified firm's energies on building strong positions in a few core businesses rather the stretching its resources and managerial attention too thinly across many businesses
C. Is an attractive strategy option for revamping a diverse business lineup that lacks strong cross-business financial fit
Answer:b

In which of the following instances is retrenching to a narrower diversification base not likely to be an attractive or advisable strategy for a diversified company?
A. When a diversified company has struggled to make certain businesses attractively profitable
B. When a diversified company has too many cash cows
C. When one or more businesses are cash hogs with questionable long-term potential
Answer:b

Strategies to restructure a diversified company's business lineup involves
A. Revamping the value chains of each of a diversified company's businesses
B. Focusing on restoring the profitability of its money-losing businesses and thereby improving the company's overall profitability
C. Revamping the strategies of its different businesses, especially those that are performing poorly
D. Divesting some businesses and acquiring new ones so as to put a new face on a diversified company's business makeup
Answer:d

Corporate restructuring strategies
A. Involve making radical changes in diversified company's business lineup, divesting some businesses and acquiring new ones so as to put a new face on the company's business lineup
B. Entails reducing the scope of diversification to a smaller number of businesses
C. Entail selling off marginal businesses to free up resources for redeployment to the remaining businesses
Answer:a

What sets a multinational diversification strategy apart from other diversification strategies is
A. The presence of extra degrees of strategic fit and more economies of scope
B. The potential to have a higher degree of technological expertise
C. A diversity of businesses and a diversity of national markets
Answer:c

The sources of a competitive advantage for a diversified multinational corporation do not include
A. Transferring competitively valuable resources from one business to another and one country to another
B. The ability to exploit opportunities for both cross-business and cross-country collaboration and strategic coordination
C. Leveraging use of a well-known and competitively powerful brand name
D. Pursuing cross-business economy of scope opportunities and striving to fully capture scale economies
E. Trying to maximize the number of cash cow businesses and minimize the number of cash hog businesses
Answer:e

Which one of the following is not a way for a company to build competitive advantage by pursuing a multinational diversification strategy?
A. Fully capturing economies of scale and experience curve effects as well as cross-business economies of scope
B. Using cross-business or cross-country market subsidization to outcompete rivals
C. Fully capturing both cross-business financial fits and cross-country financial fits
Answer:c

What are unrelated diversification strategies?

Which of the following is not one of the suggested appeals of an unrelated diversification strategy?

What are the 4 methods of diversification?

What are the 3 types of diversification strategies?